Govt may opt for importing cheap but reliable Indian cars if the crisis in supply and demand in the local auto industry continued

Nov 14 - 20, 2005

The government is actively considering to allow import of Indian cars and other automobiles which are comparatively much cheaper, for the benefit of the people.

The decision made last year to allow import of used cars and import of foreign models on reduced rate of import duties has not achieved the desired results in reducing the prices of cars produced in Pakistan.

The potential buyers either have to pay high premium for prompt delivery of the cars or have to wait for 8-10 months even after full payment or paying interest to the bank under car financing scheme.

According to car dealers in Islamabad the late delivery is causing hardships to genuine buyers as premium rates are constantly rising ranging from a minimum of Rs. 75,000 to Rs. 50,000 on various makes of cars.

"Authorities are closely watching the marketing malpractice of local car assemblers and manufacturers and may opt to go for the import of cheap but reliable Indian cars if the crisis in supply and demand in the local auto industry continued," sources in the Ministry confided. The government and lawmakers were slowly realizing that the local car manufacturers and assemblers were reaping usually rich crop due to the policies of the government of not allowing import of cars, including reconditioned ones. But the day is not far when the government will have to take decision to ease the situation and it may allow import even from India, they said adding that despite repeated reminders of the government, the local car assemblers and manufacturers have failed to provide relief to the growing number of customers and there had been open suggestion from the consumers and the car dealers for import of used cars from Gulf countries and even from India if the supply continued to lag behind the demand.

A few years ago importing cars from India was unthinkable but with political climate between the two countries improving and the WTO on the doors of the two countries, there could be a shift in the government thinking and importing cars from India may become a reality, they said.

The gap between demand and supply was widening with each passing day. Last year the local automobile industry manufactured approximately one hundred thousand cars of various brands but those were not enough to meet the existing demand. A number of car financing schemes are readily available in the market backed up with easy and comfortable pay back installments which is also fueling the demand for new cars. The local manufacturers have, however, failed to keep pace with the demand.

Of the engineering sector, automobile industry is quite rightly termed as the mother of all industries. It incorporates almost every facet of engineering - be it electrical, technical or mechanical. For the past couple of years there has been a turning point in the Pakistani automobile sector on the whole, wherein 1999-2000 it suffered negative growth, in the years to follow it has surpassed the available production capacities. At present Pakistan's automobile industry is mostly dominated by foreign assembles. It dates back to 1953 when the US General Motors set up its first plant. But things really took off in the 1980s and 1990s when the Korean and Japanese giants moved in.

Pak Suzuki was the first, and is still the market leader. Apart from Pak Suzuki the industry comprises several other joint venture companies, some domestic firms and leading automobile manufactures from Japan and South Korea - namely Toyota, Nissan, Mazda, Honda, Yamaha and KIA.

The government policies are favorable for vehicle assemblers. There are restrictions on the import of reconditioned cars. Although from the consumer point of view the policy might not be quite favorable but from the long term prospective the consumers would surely be the beneficiaries. This is because the industrial infrastructure would be built up so as to meet the prevalent automobile demand.

Despite tremendous growth in car manufacturing, supply failed to slake burgeoning demand and exorbitant prices attracted much criticism on the manufacturers. For the past couple of years the finance ministry allegedly overruled a CBR proposal wherein it was submitted that the exemption levels for CKD be brought down and CBU duty rates be slashed, to create an atmosphere of competition in the market.

This competition was meant to force the carmakers to improve quality, reduce prices and stop fleecing the country and the customers through unfair practices in parts imports/remodeling. The proposals were pressed on the grounds like yawning gap between the duty rates on CBU and CKD kits was on the rise; the smugglers were benefiting from this situation; car dealers with no strong lobbies were hand in glove with the smugglers instead of agitating the prices issue. Besides, time was fast approaching when the car prices would have started discouraging the buyers at the market and they would either opt for smuggled cars or give up buying, leaving the vendor industry in lurks.

The Pakistan government was also faced with another dilemma on international scene. The industry had eliminated most but not all of the local content requirements (deletion program that it reported to the WTO in 1995 under the Agreement on Trade Related Investment Measures). In 1999, Pakistan's "deletion" program (mandating the use of domestic inputs) encompassed 106 items. As of December 2004, 16 items in the auto and motorcycle industries remained. For these 16 items, Pakistan had petitioned for a three year extension on its original December 31, 2003, deadline to eliminate all deletions. Pakistan being a developing country was in principle required phasing out and withdrawing the trade related investment measures, inconsistent with the agreement on TRIMS, by the year 2000. However, it kept on seeking extensions of the LCR condition and was granted two consecutive extensions. The request for third extension was turned down by the WTO on the serious objections raised by the United States. Apparently the US holds no direct interest in Pakistan's automobile industry, but its future plans on investing in the sector in Pakistan cannot be ruled out.

The finance ministry, accepting the longstanding demand of local car dealers and importers in the budget 2005-06 allowed the import of old and used cars at the depreciation facility of 2 percent per month. However, the ministry maintained the condition of a luggage and gift scheme. The car dealers or the traders cannot import used and old vehicles directly.